How Aussie trade forgot China

A distanced China is the stuff of nightmares for Australia, so why is the Gillard government's trade policy structured to make it so?

Much thought has been devoted to the choices and chances confronting Australia because of potential tensions between the US alliance and the trade bonanza with China. How diabolical would it be, however, if Australia manages to align itself against China both in its traditional alliance stance but also in a new regional trade structure?

Ponder that proposition for a moment: Australia lines up against China on trade. Almost impossible, surely. Well in a strange way, it is happening.

Plenty of editorial ink and political blather has been devoted to Australia cranking up the US alliance with the new military basing deal announced during the Obama visit. Less attention is being given to the political and diplomatic meaning of Canberra's embrace of America's trade vision.

Australia has blithely signed up to a US design for Asia Pacific trade flows which is potentially sweeping, yet also legalistic and discriminatory. And by discriminatory, read this as meaning: 'No China'. An Australia that once promised never to do any trade deal that shut out Japan is now happily accelerating towards an agreement that excludes China – and might just shun Japan, too, if Tokyo can't scramble on board.

It is an odd way to be structuring for the Asia Century, yet such are the possible incongruities that attend the effort to build a Trans Pacific Partnership Agreement (TPP).

On the sidelines of the APEC summit in Hawaii, the nine TPP leaders (Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, the US, and Vietnam) announced the "broad outlines” of an agreement "to establish a comprehensive, next-generation regional agreement that liberalises trade and investment and addresses new and traditional trade issues and 21st-century challenges.” The big bang was the claim that the deal will be done in the next 12 months.

What also grabbed attention was Japan's announcement that it would like to get on board the TPP, although given Japan's past refusals to tinker with some of its own economic rigidities in exchange for trade deals, Tokyo's ability to accept the US demands intrinsic to the Partnership must be questioned.

One irony of the TPP announcement (or re-announcement, as the leaders did something similar the previous year) is that it happened at an APEC summit. In the first decade after APEC's creation, there was a mighty battle at the heart of the institution between American visions of an exclusionary trade pact and the Australia-Japan embrace of non-discrimination that travelled under the title of 'open regionalism.'

Not the least of the peculiar effects being contemplated here is how Canberra seems to be giving in to the US lawyers who masquerade as trade negotiators while abandoning the important benefits Australia has long drawn from open regionalism's explicit rejection of discrimination.

Ponder the history for a moment. Paul Keating was the prime minister who in 1992 promised: "Australia would not be party to any trade arrangement which was directed against Japan.” At the time, Keating was making an important point that was also a statement of the obvious. Japan then stood at the centre of Australia's trade interests in the same manner that China does today. And when Keating spoke, Tokyo and Canberra were still glorying in their joint creation of APEC as a vision of open Asia Pacific economic cooperation that greatly enhanced their national and regional interests.

Today, Julia Gillard could not adopt the Keating position. If the US idea of the TPP arrives, it will be a structure that is most emphatically directed against China. That is one reason why Japan is scrambling towards joining. Ernie Bower sees a real competition under way between the US and China to define how Asia’s economic integration will proceed:

"The US-led model is deep and requires massive political commitments by governments to legally bind themselves and reform current regulations and practices. The China-led model is relatively shallow and easier for governments to join. It is high-profile, with nonbinding agreements expressing general intent and some specifics around tariffs, but it includes little on other commercially important rules and regulations.”

A lot of traps and rough terrain stand in the way of the TPP aim to complete negotiations by the end of next year – not least the minor matter of the election of the US president. But even making the Partnership effort raises all sorts of questions about who is in and who is out and what the end point might look like.

Peter Drysdale headlines it as the 'economic containment' of China and judges: "Whoever dreamt up this strategy has been thinking in the corner of a little box unrelated to geo-economic-political-security reality.”

What is a Trans-Pacific dream that does not manage to recognise China, India and Indonesia?

Well, it is a vision driven by a US view of intellectual property rights and labour and environmental standards. That is the arena that the trade negotiators of Washington know so well. But while the lawyers are doing their work, the politicians may not be paying proper attention. As Shiro Armstrong argues, the central strategic challenge for the TPP must be whether China is in or out: "The biggest risk of the TPP is political: that it might divide the region strategically between its members and the rest, with China being on the outside.”

China on the outside? A strategic divide? For Australia, this should be both a bizarre proposition and the nightmare scenario. Instead, it is at the centre of Canberra's trade policy for 2012. It would be a diabolical way to align alliance and trade interests.

Originally published by The Lowy Institute publication The Interpreter. Reproduced with permission.

Graeme Dobell

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